527 Activity Surges in the States

The advocacy groups that rose to prominence in 2004 have scaled back their federal activity this election. Instead, 527s are focusing on state issues and elections. Liberals have raised more money than conservatives.

September 13, 2006 | CLARIFICATION (9/27/06): The non-federal 527 activity mentioned in this story includes only the fundraising and spending reported electronically by 527 committees to the Internal Revenue Service. 527s can choose to report their finances to the IRS or their home state. In addition, 527s with relatively small activity can file their reports on paper with the IRS, and their activity is not included in this report. For a complete picture of the 527 activity in a particular state, use this report, check the IRS for paper filings and consult the authority that collects 527 disclosures in that state.

In politics, the money behind the message speaks volumes. And although the issue advocates known as 527 committees continue to be somewhat elusive, the Center for Responsive Politics has found that these tax-exempt groups are increasingly putting their 2006 money into state-level messages, instead of focusing on national issues.

527 committees raise unlimited money for political activities, such as voter mobilization efforts, and use advertising to push their positions on particular issues. They are not meant to directly benefit federal candidates, though there can be a fine line between advocating for an issue and using that issue to support or oppose those running for office.

Unlike candidates, political parties and political action committees, which disclose their finances to the Federal Election Commission, 527s report to the Internal Revenue Service. (In fact, it’s from the IRS code—Section 527—that these tax-exempt organizations earned their name.) 527s rose to prominence during the 2004 presidential election, when groups like the Swift Boat Veterans for Truth, on the right, and MoveOn.org, on the left, had tremendous influence on the election.

Two years later, the rules governing 527s are still murky, and many groups find ways to stay low-profile. Some of the better-known 527 committees active in 2006 include EMILY’s List, which promotes the election of pro-choice Democratic women into office, and Club for Growth, which encourages conservative, pro-growth economic policies by the federal government.

According to research by the non-partisan Center for Responsive Politics, using electronic reports of committees reporting to the IRS, 527 activity this election has shifted from issues and elections affecting all 50 states to issues and elections in individual states. Depending on a state’s campaign finance laws, these 527s can advocate expressly for the election or defeat of a candidate for state office, which they cannot do in federal elections.

“Once an innovation is made and appears successful, it gets diffused to the state level. Everyone is looking for an edge.”

—Jeff Berry, Tufts University political science professor

Based on data available Aug. 22, including the first 18 months of the 2006 election cycle, 527s that are identifiably state-focused had raised 41 percent more than they reported raising to the IRS at the same point in time in the 2004 election cycle, from $75 million to $105 million. They spent 36 percent more than they had spent by the end of June in 2004, from $63 million to $85 million.

The opposite trend is apparent for 527s that focus on federal issues. Comparing 2006 to 2004, the Center found a 55 percent decrease in the amount raised by 527s that can be identified as federal committees, from $211 million to $96 million. Federal 527s have spent 40 percent less, from $197 million in 2004 to $117 million during this election cycle.

Tufts University political science professor Jeff Berry said the federal-to-state shift may simply be the result of timing. 527 committees were still relatively new during the presidential election in 2004, but they effectively spread their messages about federal issues that influenced the race. Now, in 2006, Berry said the organizations behind that activity may be trying to emulate their success on the state level. November’s elections—and control of Congress, governorships and statehouses—will be decided in the states.

“Once an innovation is made and appears successful, it gets diffused to the state level. Everyone is looking for an edge,” Berry said.

Advertisements from a non-federal 527 committee may talk about state legislation surrounding immigration reform, while ads from a federal 527 will focus on immigration reform bills before Congress, said Stephen Weissman, associate director for policy at the Campaign Finance Institute, a Washington-based research organization.

Overall in the 2006 election cycle, all 527 committees have raised and spent about $210 million, according to data available Aug. 22. This includes those identifiable as federal or non-federal committees, plus others whose purposes haven’t yet been identified.* At the same point in 2004, 527s had raised about $286 million and spent $260 million.

Among the states seeing federal 527 activity this cycle, Virginia, California, Oregon, Michigan and Illinois are all following this national trend in 2006 exactly, with an increase in state-focused 527 activity and a decrease in federal 527 activity. Sixteen additional states reported to the IRS an overall increase in the amount their non-federal 527s raised and spent.

In the District of Columbia, non-federal 527s comprise labor unions and other organizations based in Washington but focused on state issues and elections. Federal 527s in the nation’s capital have been less active in the 2006 election cycle, while state-focused 527s based in D.C. have increased their total spending by 27 percent and their total fundraising by 40 percent.

State-focused 527 committees in California, New York, Illinois and Florida have spent the most money so far this cycle, according to their non-federal 527 filings with the IRS. Iowa, Kansas and Massachusetts did not report any activity by non-federal 527s during the 2004 cycle, but this year all three reported spending and fundraising at the state level to the IRS.

“It’s the new way to participate in political campaigns. We’re on the front end of the wave, of the trend.”

—Pete Maysmith, director of state organizations for Common Cause Colorado

In July, the Campaign Finance Institute released a study that found that many 527 committees have ties to groups that can directly participate in partisan campaign activities. These groups include social welfare organizations, labor unions, business leagues and political action committees, or PACs. Club for Growth, for example, has a federal 527 committee and a PAC, which it uses to fund candidates’ campaigns. For such complex organizational structures, operating locally may be most effective, said Elizabeth Borris, director of the Center on Nonprofits and Philanthropy at the Urban Institute.

“What I might hypothesize is when money flows around an election cycle, it goes to local levels because that’s where the action is on the ground,” Borris said. “It’s another quiver in the bow. You’ve got federal and non-federal [527s] and if you’re the kind of organization working in multiple states, it’s better to have grassroots efforts in those states.”

New Jersey, Alabama, Virginia, North Carolina and Colorado have experienced the largest percentage increase in state-based 527 spending compared to 2004 activity reported to the IRS, while state fundraising has increased most sharply in Oklahoma, New Jersey, North Carolina, Colorado and New York.

In Colorado, 14 new non-federal 527s have reported activity to the IRS this cycle. The new groups, combined with increased spending by four state 527s active during the 2004 election, have multiplied Colorado’s state-focused 527 spending by nearly six times, from more than $411,000 to $2.3 million.

“It’s the new way to participate in political campaigns,” said Pete Maysmith, director of state organizations for the non-profit political advocacy organization Common Cause Colorado. “We’re on the front end of the wave, of the trend.” Maysmith said 527s are providing aggressive operatives a way to move big money into campaigns without running afoul of campaign finance laws. Contributions to 527s are not limited; contributions to candidates’ campaigns and parties are.

State-focused 527s may be so active in Colorado this cycle because of the number of initiatives that will appear on the November ballot, said Colorado State University political science professor John Straayer. Experts predict the state will set a record with about 15 ballot initiatives, including those pertaining to domestic partnership, immigration, the minimum wage and lobbying restrictions.

“Every time you put one (initiative) on the ballot, that’s another interest group supporting it and perhaps another interest group opposing it,” Straayer said. “There’s just been an explosion here.”

The increase may also be the result of a left-wing push against a rightward drift. Of Colorado’s 14 new state-focused 527s reporting to the IRS, nine identify as liberal organizations. The conservative Trailhead Group, however, is not only the largest spender in Colorado—more than $932,000, according to data available Aug. 22—but Trailhead is also among the top 527 committee spenders in the country. Alan Philp, executive director of the Trailhead Group, said the organization’s purpose is to support and assist Republican candidates for elected office. He described the group as a defensive mechanism.

“There are three or four individuals (in Colorado) with very liberal agendas that have established numerous 527s and are vigorously and generously funding those 527s,” Philp said. “It was either roll over and die or fight to survive.”

Colorado State professor Straayer said he suspects the Trailhead organization was established to counter a wealthy group of liberal individuals known in 2004 as the “Big Four.” Heiress Pat Stryker, dot-com millionaire Jared Polis, software tycoon Tim Gill and entrepreneur Rutt Bridges pooled their money to run ads targeting Republican state legislature candidates that year. This August, the Trailhead Group fought back with an ad claiming that Democratic gubernatorial candidate Bill Ritter’s background in law does not sufficiently qualify him to lead Colorado.

Around the country, progressive non-federal 527s are also ramping up their resources and spending more at the state level. Their reports to the IRS show an increase in spending of nearly 49 percent compared to June 2004, while conservative groups have spent about 18 percent more. Spending in the 2006 cycle by all 527s identified as liberal, federal and non-federal, reached $117 million, according to data available Aug. 22, compared with about $71 million spent by conservative 527s. Similarly, 527s have raised more in 2006, reaching nearly $123 million, compared with $63 million raised by conservative 527s.

“The Democrats are doing better comparatively in this election than usual, so that’ll show up in any campaign election funnel,” Tufts University’s Berry said. Also, progressive groups have tended to favor 527s as instruments for issue advocacy, while right-leaning groups tend to fund such efforts through trade associations and other types of non-profit organizations.

Berry predicted that for the 2008 presidential election, the country will see an upsurge in 527 activity, in individual states and nationally, and by progressives and conservatives. He added that while 527s may not dramatically swing national public opinion, they might sway it just enough in states to influence the outcome of close races. And in 2006, that could have big implications for the balance of power in Congress and in statehouses throughout the nation.

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